The Novice Investor: What You Need to Know to Succeed

For the novice investor, successful investing takes attention and commitment. Strategized investments can be a rewarding way to build wealth and meet realistic financial goals. However, they are not the exclusive terrain of the mega-rich. Nor are they a fool-proof way to get-rich-quick.

Common mistakes made by novice investors include opting for low-potential/low-return cash investments or making high-risk, ill-informed financial decisions leading to irrecoverable losses. Top finance blogs and publications can help you on your way. But it will take even more to prepare yourself for success.

Don't let unfamiliar terminology and complex investment products detract you from the potential gains that the right investment product can offer. To maximize your potential for returns, here are five key pointers to guide you on your investment journey:

1: Assess the big picture and set your goals

Before throwing all caution to the investment winds, take an honest assessment of your current financial circumstances. A financial professional can help you to identify your current status and set out your future financial goals. Different types of investment vehicles are designed for different purposes. Getting the right advice early on will help you identify the most appropriate product to meet your financial objectives.

2: Risk

Your appetite for investment risk should be formed by your financial circumstances, your personal attitude to risk, timeframe, and need for returns. Understanding the movements of currencies and commodities might help you settle upon the level of risk you want to take. As a new investor, you should strike a balance. Spread your money across a few different types of investments and keep track of how these perform until you get more experience or develop a preference for a particular market.

3: Ongoing Commitment

Ongoing monitoring of your portfolio is key. Over the course of your investment terms, your personal circumstances may change and the economic landscape certainly will.

Pay attention to global current affairs. They will influence the movement of currencies, shares, markets, unit prices and interest rates. Also, take an active role in your money's potential. Think of your investments as a series of short-term commitments. A novice investor should commit to reviewing their performance regularly. Be prepared to make decisions to move, encash, buy or sell units depending on crucial market changes.

4: Read the small print

Past performance is not a guide to future performance. The value of your fund may go down as well as up.

It is important to pay attention to the small print. When you follow steps 1, 2 and 3 above, you've identified how much money you can afford to put away, you've chosen the level of risk you are comfortable with, and you've committed to reviewing the performance regularly.

Charges on investments can be front-ended commissions, government levies, allocation rates, switch fees, withdrawal and encashment fees – and fees are charged whether the investment performs or not. Coupled with taxes on growth, the impact of fees can significantly reduce reasonably healthy returns on your investments. Make sure you understand the impact of fees should you make a decision to encash or switch around your portfolio.

5: The Novice Investor Should Leave the Crystal Ball to the Psychics

Whilst the markets perform in cycles, it is nigh on impossible to predict with 100% accuracy how a fund will perform on a given cycle. Opting into a rapidly inflating market is tempting, and in the short term may yield impressive returns, but the curtain can drop just as quickly. A measured approach to investing for the novice investor involves spreading risk and diversifying.

Whether you're dipping your toe in the investment pool for the first time or have been paddling cautiously for some time, if you keep these key pointers in mind, you will start your investment journey with confidence and optimism.